Incentive Experiments in Unemployment Insurance

This resource is one chapter in a publication entitled “Lessons Learned from Public Workforce Program Experiments.”

“[E]conomic theory suggests that paying unemployment insurance (UI) benefits may prolong joblessness, and econometric research has found evidence that UI work disincentives do exist. This led to a series of randomized controlled trials to identify ways to overcome work disincentives while still paying UI. The experiments have assessed interventions on both sides of the job market. Job seeker trials have tested cash reemployment incentives in various ways: by monitoring active work search, by trying new types of job search assistance, by checking UI benefit eligibility, and by targeting assistance based on worker characteristics. Employer trials have tested hiring incentive payments, self-employment assistance, and ways to encourage work sharing. This chapter reviews the experimental evidence and considers it in the current context of the federal-state UI system” (p.85).

The first section of the chapter “briefly reviews the principles and pitfalls of evaluation with experiments” (p.86). The following sections summarize evidence from several experiments “that have been done to identify ways to promote employment and conserve UI reserves” (p.86). These include:

1. “A series of…four reemployment bonus experiments targeted at UI recipients….[that] provided various levels of lump-sum payments to UI recipients who took new, full-time jobs within 6 to 12 weeks of their benefit application and held those jobs for at least three to four months” (p.88-89).
2. “The UI work test…[that] involves beneficiaries certifying on their biweekly continued claim form that they have actively searched for work [and]…..[j]ob search assistance (JSA)….[that] comprises a bundle of services available from the public labor exchange” (p.93).
3. Targeted JSA, which “requires JSA early in the UI benefit year for those most likely to exhaust their UI entitlement” (p.97).
4. Various employer incentives “to induce hiring, self-employment, or job retention” (p.100).

“The concluding section…offers a summary and some comments on the relevance of lessons from these experiments for the UI system today” (p.86).

(Abstractor: Author and Website Staff)

“Research in the 1970s recognized the moral hazard risks of work disincentives resulting from paying UI benefits and estimated the effects to be between 0.5 and 1.5 weeks for a 10 percent increase in the wage replacement rate. This work led to a series of UI-related field experiments to identify improved administrative practices and incentives to control system costs and improve beneficiary outcomes” (p.104). The author reviews a number of these field experiments and presents the following findings by strategy: 1. “The reemployment bonus experiments in the 1980s estimated that offers would reduce UI durations by an average of 0.5 weeks and be modestly cost effective. Simulations based on the bonus experiments found that a bonus amount smaller than the average, when targeted to the half of UI-eligible beneficiaries who are most likely to exhaust UI, achieved a 0.5-week reduction more cost effectively” (p.104). 2. “Field experiments estimating the effects of strengthening work search requirements estimated UI duration reductions of between 0.5 and 1.0 week. An experiment removing the work test saw durations jump by 3.3 weeks” (p.104-105). 3. “Experimental evaluations of targeted job search assistance estimated UI durations to be shortened by between 0.5 and 2.2 weeks” (p.105). 4. “Field experiments evaluating hiring incentives offered to employers have generally not been found to be cost-effective policy options, mainly because of low employer take-up. However, some smaller UI programs show promise as labor demand policies—particularly when properly targeted” (p.105). “The federal-state UI program is now gradually rebuilding system reserves after the Great Recession. Many states were left with billions in debt from paying regular benefits, even though the federal government fully paid for benefit extensions at unprecedented levels. Some states are retreating from accepted standards of UI adequacy with the expectation that the federal government will once again intervene when a new unemployment crisis emerges….The experiments reviewed in this chapter offer a practical menu of choices to rebuild an employment security system that is a stronger part of the social safety net for all Americans” (p.105). (Abstractor: Author and Website Staff)

• Last Updated:
• Created:
• Resource Publication Date: 2017
• Author(s): O’Leary, Christopher J.
• Organizational Author(s): W.E. Upjohn Institute
• Funding Source: W.E. Upjohn Institute
• Resource Availability: Publicly available
• Posted by: Wesley Peterson
• Posted in: Workforce System Strategies